Loans, Credit Scores, and Consumer Credit Practice Test

The payments are called installments. In an installment loan, you borrow a lump sum and repay it with regular, typically fixed monthly payments that cover both the interest on the remaining balance and a portion of the principal. Over time, the interest portion declines and the principal portion increases as the loan is paid off, until it’s fully repaid. This is different from revolving credit, where you borrow up to a limit and repay in variable amounts, often carrying a balance from month to month. An unpaid account balance is simply the remaining amount owed, not the payment itself, and installment credit describes the loan type rather than the payment schedule.